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Vero Energy Inc. announces 27% growth in production with its first quarter of 2009 financial results

/NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES/
CALGARY, May 13 /CNW/ - Vero Energy Inc. ("Vero" or the "Company")
(TSX-VRO) today announces its first quarter, 2009 financial results. Copies of
the financial statements and management discussion and analysis in respect
thereof for the quarter ended March 31, 2009 will be available, in due course,
through www.sedar.com or by visiting Vero's website at www.veroenergy.ca.
First Quarter 2009 Highlights
- Increased average daily production 27% to 7,352 boe/d in 2009 from
5,771 boe/d in the first quarter of 2008.
- Cash flow from operations was $8.2 million equating to $0.22 per
share (basic and diluted).
- Capital invested, (excluding dispositions), was $28.2 million.
- Achieved an operating netback of $15.39 per boe and cash flow netback
of $12.38 per boe.
- Increased bank credit facility to $115 million from $90 million.
- Drilled 7 (6.4 net) wells with a 100% success rate including 1
(1.0 net) new pool discovery.
2009 Update
- Current production is approximately 7,700 boe/d based on field
estimates.
- Bought-deal equity financing of 4 million shares for gross proceeds
of $15 million expected to close in late May.
Financial and operating highlights for the first quarter of 2009 with
comparisons to the first quarter of 2008 are as follows:
Financial ($000's except
per share amounts) Q1 2009 Q1 2008 % Change
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Production revenue 22,135 31,168 (29)
Cash flow from operations 8,201 17,842 (54)
Per basic share 0.22 0.60 (63)
Per diluted share 0.22 0.59 (63)
Net (loss) earnings (4,695) 3,783 (224)
Per basic share (0.13) 0.13 (200)
Per diluted share (0.13) 0.13 (200)
Net capital expenditures 28,177 19,888 42
Net debt 123,973 47,059 163
Share Capital (000's)
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Basic, weighted average 36,955 29,597 25
Basic, end of period 36,952 30,855 20
Diluted, weighted average 36,955 30,154 23
Fully diluted 40,098 33,295 20
Daily Production
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Natural gas volumes (mcf/d) 35,500 26,730 33
Light oil (boe/d) 426 567 (25)
Natural gas liquids (boe/d) 1,008 749 35
Corporate (boe/d) 7,352 5,771 27
Average Prices
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Natural gas ($/mcf) 5.18 8.51 (39)
Light Oil ($/bbl) 45.36 88.07 (48)
Liquids ($/bbl) 42.23 86.89 (51)
Corporate ($/boe) 33.45 59.35 (44)
Netbacks ($/boe)
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Operating 15.39 36.86 (58)
Cash flow 12.38 33.98 (64)
Wells drilled
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Gross 7 8 (13)
Net 6.4 5.5 16
(1) Cash flow from operations is calculated as cash provided by operating
activities from the statement of cash flows, adding change in
non-cash working capital and asset retirement expenditures. Cash flow
from operations is used to analyze the Company's operating
performance and leverage. Cash flow from operations does not have a
standardized measure prescribed by Canadian Generally Accepted
Accounting Principles and therefore may not be comparable with the
calculations of similar measures for other companies.
(2) Net debt represents current assets less current liabilities and bank
debt (but excludes the potential future liability related to the
mark-to-market measurement of hedges). It does not have a
standardized meaning prescribed by Generally Accepted Accounting
Principles and it is therefore unlikely to be comparable to similar
measures presented by other companies.
(3) All barrels of oil equivalent conversions use 6 mcf to 1 barrel of
oil.
(4) Operating netback equals total revenue less royalties, transportation
and operating costs calculated on a per boe basis. Operating netback
and cash flow from operations netback do not have a standardized
measure prescribed by Canadian Generally Accepted Accounting
Principles and therefore may not be comparable with the calculations
of similar measures for other companies.
OUTLOOK
Vero delivered solid performance despite a turbulent first quarter of
2009. During the quarter, Vero participated in the drilling of 7 (6.4 net)
wells of which 4 (4.0 net) were horizontal wells, and had a drilling success
rate of 100%. Edson, an area which we continue to believe is as profitable as
any gas producing region in North America, was the primary focus where 5 (5.0
net) horizontal wells were drilled.
The first quarter of 2009 contained mixed economic messages, including:
rapidly declining natural gas and oil prices, declining interest rates,
declining rig counts and a late rebound in the equity markets from the
preceding free-fall. The quarter presented a very challenging environment for
producers renewing credit facilities amongst lenders who changed their
forecasts as commodity prices declined. These challenges made forecasting and
managing the business more difficult into the second quarter. During this
difficult time Vero was able to secure an increase in its bank line to $115
million from $90 million while many other producers struggled to maintain
their existing facilities. Recently there has been some better economic news
as energy commodity prices appear to have bottomed and are strengthening.
North American natural gas drilling has declined by 50% since late
September 2008, paving the way for the supply and demand imbalance to correct
itself before the end of 2009. Persistently low commodity prices have provided
an acid test of the economics of several emerging and established shale gas
plays. Specifically, the average cost to get a return on shale gas in North
America is becoming more apparent, all shale plays are not equal, and all of
the plays are subject to huge variability. It is evident that current prices
will not provide the return that is required to continue with profitable
investment in natural gas. This is encouraging for prices as the supply, which
now declines at higher rates than at any other time in history, will start to
retreat. We look forward to price recovery, yet we believe that some caution
is required as storage of natural gas and crude oil are at historically high
levels. Therefore, there is still potential for volatility in the near term.
Vero has always been focused on the longer term sustainability and
profitable growth. Our inventory and reserves are not disappearing, and
therefore we look to resume our drilling program later in the third quarter.
With profitability in mind, the Company, in the first quarter, delayed
tie-ins of over 800 boed of production for more than a month to take advantage
of the Alberta government royalty stimulus for wells commencing production
after April 1. As well, 400 boed of high operating cost production was shut
in. We experienced approximately two weeks of downtime at our Edson facility
due to the startup of the gas plant expansion in early January, and also a
mechanical failure that required replacement of the main compressor engine in
March.
Notwithstanding these issues, production still grew by 27% from the first
quarter of 2008 to the first quarter of 2009. The Company's production
averaged 7,800 boed in April and is currently estimated to be 7,700 boed based
on field estimates. At the end of May a third party facility that currently
processes approximately 2,500 boed of Vero production is scheduled for a two
week turnaround. With that in mind, and a paced return to drilling activity,
the company expects yearly production to average 7,500 boed which is at the
lower end of our previous guidance. The recently announced equity financing,
which is anticipated to close on or about May 21st, provides us the financial
flexibility to carry out, or potentially expand our currently planned, 2009
capital spending of between $45 and $50 million. The currently remaining
capital program for 2009 includes drilling 7 (6 net) wells, which includes 5
(4.5 net) horizontal wells. The anticipated production from these wells,
depending on timing, is expected to result in Vero achieving year-end exit
production of between 8,000-8,500 boed.
As demonstrated throughout our history, Vero will draw heavily on its low
operating and finding and developing cost capabilities to deliver solid
results. With reduced operational activity for the next few months we will
focus on optimizing production volumes and reducing both operating and capital
costs. Vero believes it can position itself for a rapid and strategic return
to activity to take advantage of what, we believe, will be an inevitable
turnaround in commodity prices.
In summary, we are of the view that difficult times can yield significant
opportunities and we will continue to look at creative ways to enhance our
growing inventory and long term strategy.
FINANCIAL REVIEW
While attention turned to the commodity prices declines and the resulting
drop in oil and gas equities, Vero was undeterred. Prudent management dictated
that we adjust our planned capital spending and therefore focused on
high-grade drilling prospects. As a result, Vero delivered excellent
operational successes during the quarter. These successes were highlighted by
a 27% increase in daily production volumes to 7,352 boe/d as well as a 100%
success rate in its drilling program. Operational results translated into cash
flow for the first quarter of 2009 of $8,201 or $0.22 per basic and diluted
share. Comparatively, cash flow for the first quarter of 2008 was $17,842 and
resulted in per share amounts of $0.60 per basic share and $0.59 per diluted
share. Successful drilling results in the first quarter have kept Vero's
depletion rate stable with the latter part of 2008. However, the commodity
price declines took their toll and Vero realized a loss in the quarter of
$4,695 or $0.13 per share (basic and diluted) as compared to net earnings in
the first quarter of 2008 of $3,783 or $0.13 per share (basic and diluted).
Vero invested $28.3 million (excluding dispositions) in capital projects
during the quarter with a focus on continued development of the Company's key
resource play in Edson. Vero directed 71% of its first quarter capital
expenditures towards drilling and completing 7 (6.4 net) wells, of which 4
(4.0 net) were horizontal wells. Facilities and tie-ins expenditures of $6.3
million comprised 22% of the first quarter's capital as five new wells were
brought into production. In addition, $832 thousand was spent on Crown land
acquisitions primarily in the Edson area. At the end of the first quarter of
2009, the Company had net debt of approximately $124 million which included
bank debt of $102 million on a currently available bank line of $115 million.
Attributable to the significant increase in reserves from a combination
of four acquisitions and a successful drilling program in 2008, Vero's bank
line of credit was increased to $115 million in March of this year. This
represented a 28% increase from the previous bank line of $90 million. The
increase was achieved in the face of declining price decks used by the banks.
This credit enhancement, plus the previously announced equity financing
(estimated net proceeds of $14 million), puts the Company in a solid financial
position going into the uncertain summer months. Vero's capital program will
be scaled back over the summer months to include mainly optimization projects
as we let cash flow catch up to our first quarter spending. Vero's capital
budget remains flexible and is under continual review given the current
economic environment.
OPERATIONS REVIEW
Edson, Alberta
--------------
Edson continues to be Vero's largest producing property with production
of 5,005 boe/d (81% natural gas) in the first quarter of 2009. This area
accounted for 68% of total corporate production. The expansion of Vero's gas
processing facility to 35 mmcfd was completed during the quarter and became
operational in January. The completion of this project will provide increased
potential throughput of 24.5 mmcfd, reduce down time, allow for continued
control of the infrastructure in our primary core area and support development
and extension of our drilling. An element of reduced production occurred
during the quarter as the Vero operated gas processing facility had extra
delays during start-up in January and again in March. The main compressor
experienced a severe mechanical failure resulting in a full replacement. This
failure resulted in cumulative downtime of approximately two weeks. In
addition, it is anticipated that Vero will experience reduced production of
about 2,500 boe/d for approximately two weeks at the end of May as a third
party gas processing facility will be undergoing a scheduled turnaround.
Vero's primary geological targets in Edson are the Rock Creek and
Mannville zones, which range in depth from 2,000 to 2,500 meters and are
characterized by gas with a high liquid content, capable of generating liquid
volumes of up to 30 bbls/mmcf.
During the quarter, the Company drilled 5 (5.0 net) wells in the area
with a success rate of 100%. Vero's focus continues to be in horizontal
drilling as 4 (4.0 net) of the 5 wells drilled were horizontal wells. In
addition to these drilling operations a total of 2 (2.0 net) wells were
recompletions pursuant to farm-in commitments. Plans for the second half of
the year will be focused on drilling in the Edson area with 7 (6.0 net) wells
planned for later in the year and includes 5 (4.5 net) horizontal wells.
Vero's acreage in the area consists of 68,640 gross (38,640 net)
developed acres and 67,200 (52,744 net) undeveloped acres. A majority of the
acreage in Edson has potential for at least two wells per section and the
Company has an ongoing program of making applications to the regulator for
down spacing approvals. Notwithstanding our acreage in Edson is a significant
part of Vero's total acreage, we continue to stress that the reserve potential
in this area is an even more important part of the area development plan.
With Vero's relatively low costs at Edson, in both capital and operating,
it has the flexibility to respond quickly and efficiently to prevailing
commodity prices. Coupling facility and operational control to a high quality
inventory, characterized by short on-stream cycle time, will allow Vero the
opportunity to create significant value as commodity prices recover. The
Company is also in a position to prudently take advantage of the Alberta
drilling and royalty incentive programs announced in March.
Whitecourt
----------
Whitecourt is Vero's second largest producing area primarily as a result
of the three acquisitions completed in 2008. Production averaged 971 boe/d
(86% natural gas) in the first quarter representing a 54% increase from fourth
quarter volumes. The Company drilled one (1.0 net) well during the quarter.
Notwithstanding that no additional wells are planned in the area for the
remainder of this year we have numerous opportunities in the Company's land
base that can be executed upon once commodity prices improve. Our focus during
the remainder of the year will be on operating efficiencies and continuing to
augment our portfolio with drilling and enhancement projects.
Vero currently controls 42,238 (22,403 net) developed acres and 60,320
(49,657 net) undeveloped acres in this area.
Corbett
-------
Corbett contributed approximately 8% to Vero's daily production average
in the first quarter while averaging 609 boe/d (73% natural gas).
Vero currently controls 10,238 (5,885 net) developed acres and 28,480
(22,195 net) undeveloped acres in this area.
Other Areas
-----------
Total production for non-core areas in the third quarter was 767 boe/d
(65% natural gas). The largest of our non-core areas is Wilson Creek. During
the quarter one (0.43 net) well was drilled. This well was brought on
production in April to take advantage of the royalty relief incentives offered
by the Province of Alberta.
Vero has 56,169 (24,678 net) developed acres and 62,636 (42,680 net)
undeveloped acres in the Other Areas, non-core category.
FINANCIAL STATEMENTS
Below is selected financial statement information for the three month
periods ended March 31, 2009 and 2008. For full disclosure of Vero's financial
statements with their accompanying notes and the Management's Discussion and
Analysis, please visit our website or SEDAR.
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VERO ENERGY INC.
Consolidated Balance Sheets
(in thousands of dollars)
March 31, December 31,
2009 2008
(unaudited) (audited)
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ASSETS
CURRENT
Accounts receivable 20,514 29,218
Prepaid expenses and deposits 6,764 5,294
Loans receivable 4,023 350
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31,301 34,862
Property and equipment 313,398 297,697
Goodwill 19,913 19,913
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364,612 352,472
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LIABILITIES
CURRENT
Accounts payable and accrued liabilities 52,826 63,354
Bank debt 102,448 75,419
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155,274 138,773
Asset retirement obligations 5,703 5,570
Future taxes 21,208 17,416
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182,185 161,759
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SHAREHOLDERS' EQUITY
Share capital 155,184 160,103
Contributed surplus 6,098 4,759
Retained Earnings 21,145 25,851
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182,427 190,713
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364,612 352,472
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VERO ENERGY INC.
Consolidated Statements of Operations, Comprehensive (Loss) Income and
Retained Earnings
For the three months ended March 31,
(in thousands of dollars, except per share data) (unaudited)
-------------------------------------------------------------------------
2009 2008
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REVENUE
Production revenue 22,135 31,168
Royalties (5,257) (8,492)
Unrealized loss on risk management activities - (3,468)
Interest &amp; other income 21 -
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16,899 19,208
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EXPENSES
Operating 5,821 2,694
Transportation 864 626
General and administrative 1,197 892
Stock based compensation 1,339 186
Interest and bank charges 816 622
Depletion, depreciation and accretion 12,609 8,753
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22,646 13,773
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(LOSS) INCOME BEFORE INCOME TAXES (5,747) 5,435
INCOME TAX (RECOVERY) EXPENSE
Future (1,052) 1,652
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(1,052) 1,652
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NET (LOSS) EARNINGS AND COMPREHENSIVE (LOSS)
INCOME (4,695) 3,783
RETAINED EARNINGS, BEGINNING OF PERIOD 25,851 4,864
REPURCHASE OF SHARES (11) -
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RETAINED EARNINGS, END OF PERIOD 21,145 8,647
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NET (LOSS) EARNINGS PER SHARE
Basic (0.13) 0.13
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Diluted (0.13) 0.13
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VERO ENERGY INC.
Consolidated Statements of Cash Flows
For the three months ended March 31,
(in thousands of dollars) (unaudited)
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2009 2008
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CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES:
OPERATING
Net (loss) earnings (4,695) 3,783
Adjustments for:
Unrealized loss on risk management activities - 3,468
Depletion, depreciation and accretion 12,609 8,753
Future income taxes (1,052) 1,652
Stock based compensation 1,339 186
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8,201 17,842
Changes in non-cash working capital (14,050) (2,465)
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(5,849) 15,377
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FINANCING
Increase (decrease) in bank debt 27,029 (9,935)
Proceeds from issuance of commons shares,
net of share issue costs - 16,761
Repurchase of share (86) -
Loans to officers/directors (3,673) -
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23,270 6,826
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INVESTING
Additions to petroleum and natural gas
properties (28,317) (19,883)
Additions to administrative assets (5) (5)
Proceeds on Sales of Property/Equipment 145 -
Changes in non-cash working capital 10,756 (2,315)
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(17,421) (22,203)
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NET DECREASE IN CASH AND CASH EQUIVALENTS - -
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD - -
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CASH AND CASH EQUIVALENTS, END OF PERIOD - -
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Vero Energy Inc. is a Calgary based oil and natural gas exploration and
development company. Vero's common shares trade on The Toronto Stock Exchange
under the symbol "VRO". Please view the Vero Energy website at
www.veroenergy.ca for the latest corporate presentation and details of
anticipated 2009 operations.
This press release shall not constitute an offer to sell or a
solicitation of an offer to buy the securities in any jurisdiction. The common
shares of Vero will not be and have not been registered under the United
States Securities Act of 1933, as amended, and may not be offered or sold in
the United States, or to a U.S. person, absent registration or applicable
exemption therefrom.
READER ADVISORY
Forward-Looking Statements: Certain information regarding the Company in
this news release including management's assessment of future plans and
operations, production estimates, drilling inventory and wells to be drilled,
timing of drilling and tie-in of wells, productive capacity of new wells,
capital expenditures and the timing thereof, may constitute forward-looking
statements under applicable securities laws and necessarily involve risks
including, without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and transportation, loss of
markets, volatility of commodity prices, currency fluctuations, imprecision of
reserve estimates, environmental risks, competition from other producers,
inability to retain drilling rigs and other services, the timing and length of
plant turnarounds and the impact of such turnarounds and the timing thereof,
delays resulting from or inability to obtain required regulatory approvals and
ability to access sufficient capital from internal and external sources. As a
consequence, the Company's actual results, performance or achievements could
differ materially from those expressed in, or implied by, these
forward-looking statements and, accordingly no assurance can be given that any
events anticipated by the forward-looking statements will transpire or occur,
or, if any of them do so, what benefits the Company will derive therefrom.
Readers are cautioned that the foregoing list of factors is not exhaustive.
Additional information on these and other factors that could affect the
Company's operations and financial results are included in reports on file
with Canadian securities regulatory authorities and may be accessed through
the SEDAR website (www.sedar.com), and the Company's website
(www.veroenergy.ca). Furthermore, the forward-looking statements contained in
this news release are made as at the date of this news release and the Company
does not undertake any obligation to update publicly or to revise any of the
included forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required by applicable securities
laws.
BOE Disclosure: Disclosure provided herein in respect of barrels of oil
equivalent (boe) may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 Mcf: 1 Bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead. Mboe means thousands of barrels of oil
equivalent.
Non-GAAP terms: this press release contains the terms "cash flow from
operations" and "netbacks" which are not terms recognized under Generally
Accepted Accounting Policies ("GAAP"). The Company uses these measures to help
evaluate its performance as well as to evaluate acquisitions. The Company
considers cash flow from operations a key measure as it demonstrates the
Company's ability to generate funds necessary to repay debt and to fund future
growth through capital investment. Funds generated from operations should not
be considered as an alternative to, or more meaningful than, cash flow from
operating activities as determined in accordance with Canadian GAAP as an
indicator of Vero's performance. Vero's determination of cash flow from
operations may not be comparable to that reported by other companies. The
reconciliation between net income and cash flow from operations can be found
in the statement of cash flows in the financial statements. Vero also presents
funds generated from operations per share whereby per share amounts are
calculated using weighted average shares (basic and diluted) outstanding
consistent with the calculation of net earnings per share, which per share
amounts are calculated under GAAP. The Company considers netbacks as a key
measure as it demonstrates its profitability relative to current commodity
prices. Operating netbacks are calculated by taking total revenues and
subtracting royalties, operating expenses and transportations costs on a per
boe basis. Cash flow netbacks are calculated by taking the operating netback
and subtracting interest costs, and general and administrative costs on a per
boe basis.
%SEDAR: 00022902E